USD index vs. AUD index

barbs00 · 25 November 2015

Hi Guys,

I am looking at investing in an S&P 500 index ETF and adding a few thousand each month - I am currently looking at Vanguards flagship VOO (in USD) and VOOV (in AUD).

I am a little confused as to how this works. Let me know I am am thinking about this the right way.

My thinking is that if I buy VOOV(AUD denominated) and the AUD weakens against the USD by say 10% and the S&P 500 goes up by 10% then I have effectively made no money as the raise in share price has been offset by a loss in the currency.

Conversely If I had bought VOO (in USD) and the same scenario occurred (share price up 10% and AUD down 10%) then I would have made a 20% return.

Does this sound right to you guys? I think I have it right but this is kinda baking my noodle as we have US companies but in an AUD denominated ETF.

I have a view that the AUD will weaken further over the medium term so was thinking about putting my money for now in VOO (and cop the exchange fee) and if the AUD weakens then I can stop adding to VOO and start putting it into VOOV.

Any advice greatly appreciated!

christianrenel · 25 November 2015

barbs00 said:
Hi Guys,

I am looking at investing in an S&P 500 index ETF and adding a few thousand each month - I am currently looking at Vanguards flagship VOO (in USD) and VOOV (in AUD).

I am a little confused as to how this works. Let me know I am am thinking about this the right way.

My thinking is that if I buy VOOV(AUD denominated) and the AUD weakens against the USD by say 10% and the S&P 500 goes up by 10% then I have effectively made no money as the raise in share price has been offset by a loss in the currency.

Conversely If I had bought VOO (in USD) and the same scenario occurred (share price up 10% and AUD down 10%) then I would have made a 20% return.

Does this sound right to you guys? I think I have it right but this is kinda baking my noodle as we have US companies but in an AUD denominated ETF.

I have a view that the AUD will weaken further over the medium term so was thinking about putting my money for now in VOO (and cop the exchange fee) and if the AUD weakens then I can stop adding to VOO and start putting it into VOOV.

Any advice greatly appreciated!

Hi,

Your statement on the product is correct about Vangaurd, The product I use to get US exposure is IVV (ISHARES S&P 500), this is duel listed on ASX and DOW. If there is a price movement or a currency movement then this product will reflect it. The distribtions are paid quarterly in aussie dollars into a aussie bank account.

Kind Regards

Christian Renel

barbs00 · 26 November 2015

christianrenel said:
Hi,

Your statement on the product is correct about Vangaurd, The product I use to get US exposure is IVV (ISHARES S&P 500), this is duel listed on ASX and DOW. If there is a price movement or a currency movement then this product will reflect it. The distribtions are paid quarterly in aussie dollars into a aussie bank account.

Kind Regards

Christian Renel

Hi Christian,

Thanks for your reply.

Do you buy in USD or AUD? I guess there a pros and Cons of each.

If you buy in USD do you know how the distributions are paid?

Also, which broker do you use? I plan on buying small amount regularly so I don't want high brokerage fees. I would prefer IB but Aussies cannot do forex trades now so they are no good for buying USD indexes. They will give a loan to buy the USD but of course then you have to pay interest.

Cheers,

christianrenel · 26 November 2015

barbs00 said:
Hi Christian,

Thanks for your reply.

Do you buy in USD or AUD? I guess there a pros and Cons of each.

If you buy in USD do you know how the distributions are paid?

Also, which broker do you use? I plan on buying small amount regularly so I don't want high brokerage fees. I would prefer IB but Aussies cannot do forex trades now so they are no good for buying USD indexes. They will give a loan to buy the USD but of course then you have to pay interest.

Cheers,

Hi,

The IVV (ISHARES S&P 500) is listed on the ASX and also listed on the DOW as well. Its the biggest index fund in the world with the most market markers, so liquidity not an issue.

Being duel listed in US dollars, when there is market moves on the US at night, the Aussie market reflects this pricing in the morning. If the aussie dollar goes down then the IVV will go down, this also depends on the index movement.

The dividends are paid in US dollars into australian bank accounts, Computershare perform the distrubutions of IVV.

Information

https://www.ishares.com/us/products/239726/ishares-core-sp-500-etf

I purchased IVV through Etrade a discount broker, this can be expensive if you are looking at trading every month in small postion, buy cost effective with large positions.

Kind Regards

Christian Renel

barbs00 · 27 November 2015

Thanks Christian - that is a big help

christianrenel said:
Hi,

The IVV (ISHARES S&P 500) is listed on the ASX and also listed on the DOW as well. Its the biggest index fund in the world with the most market markers, so liquidity not an issue.

Being duel listed in US dollars, when there is market moves on the US at night, the Aussie market reflects this pricing in the morning. If the aussie dollar goes down then the IVV will go down, this also depends on the index movement.

The dividends are paid in US dollars into australian bank accounts, Computershare perform the distrubutions of IVV.

Information

https://www.ishares.com/us/products/239726/ishares-core-sp-500-etf

I purchased IVV through Etrade a discount broker, this can be expensive if you are looking at trading every month in small postion, buy cost effective with large positions.

Kind Regards

Christian Renel

GPO · 23 December 2015

barbs00 said:
Thanks Christian - that is a big help

Hi All, thanks from me too, I had exactly the same questions.

A bit more on the fees related to the Vanguard managed fund vs IShares ETF:
in the scenario where I invest $2000 monthly for 10 years, I understand the approximate fees would be:
Vanguard:
0.13% buy spread x 120 purchases x $2000 = $312
Management fee (0.35%-0.9% depending on balance) average annual fee $757 x 10 = $7570
Total: $7882

IShares ETF
$12 brokerage fee x 120 purchases =$1,440
Management fee 0.07% pa x average balance $60,000 x 10 years = $840
Total: $2,280

Are there any other fees I haven't counted in or any other reasons to choose Vanguard managed fund over the ETF?

Thanks everyone in advance for any input!

skyQuake · 23 December 2015

GPO said:
Hi All, thanks from me too, I had exactly the same questions.

A bit more on the fees related to the Vanguard managed fund vs IShares ETF:
in the scenario where I invest $2000 monthly for 10 years, I understand the approximate fees would be:
Vanguard:
0.13% buy spread x 120 purchases x $2000 = $312
Management fee (0.35%-0.9% depending on balance) average annual fee $757 x 10 = $7570
Total: $7882

IShares ETF
$12 brokerage fee x 120 purchases =$1,440
Management fee 0.07% pa x average balance $60,000 x 10 years = $840
Total: $2,280

Are there any other fees I haven't counted in or any other reasons to choose Vanguard managed fund over the ETF?

Thanks everyone in advance for any input!

IShares looks cheaper because you are comparing it against a vanguard managed fund. If you compare against a vanguard index etf the costs are nearly identical

GPO · 23 December 2015

skyQuake said:
IShares looks cheaper because you are comparing it against a vanguard managed fund. If you compare against a vanguard index etf the costs are nearly identical

Hi skyQuake,

That would likely be the case. What I am trying to understand is - are there any benefits of a managed fund or any disbenefits (additional costs) of an ETF that would make one consider a managed fund instead of an ETF?

skyQuake · 23 December 2015

GPO said:
Hi skyQuake,

That would likely be the case. What I am trying to understand is - are there any benefits of a managed fund or any disbenefits (additional costs) of an ETF that would make one consider a managed fund instead of an ETF?

Thats a different can of worms...

There's the school of thought that says managed funds tend to underperform the market before fees, and drastically underperform the market after fees in the long run. So you're better off with a low fee index fund.

Then theres those that pick out some funds that outperform the index year in year out. However a good portion of them are now closed to new investors due to sheer size

christianrenel · 4 January 2016

skyQuake said:
Thats a different can of worms...

There's the school of thought that says managed funds tend to underperform the market before fees, and drastically underperform the market after fees in the long run. So you're better off with a low fee index fund.

Then theres those that pick out some funds that outperform the index year in year out. However a good portion of them are now closed to new investors due to sheer size

The difference between Exchanged Traded Funds and Managed Funds is that ETF are listed, so they can be sold on the open market the ASX. Managed Funds you would need to put a redemption order in which could take a couple of days to sell.

Kind Regards

Christian Renel

USD index vs. AUD index

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